Dementia and Financial Planning (Facebook Live)

More than 1 out of 2 senior citizens are predicted to suffer from dementia resulting in partial or total lost of mental capacity. Like all financial planning matters, planning for this eventuality has to start young. In this video presentation, I will discuss what are the things in insurance and retirement planning you have to do while you are young in order to prepare for this eventuality.

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Below is a transcript of the video:

"Hi, I’m Wilfred Ling and I’m a professional Financial Planner. Thanks for coming virtually to this presentation on Dementia and Financial Planning. I want to talk about this subject matter because I saw in the newspaper that Dementia is becoming a big problem these days. Some of you probably already know me through my mailing list, are my existing clients, or have been following my Facebook page. For those who don’t know what I do, my main focus is to provide Financial Services to individuals living in Singapore. I do have clients overseas but majority are base in Singapore. Today, I will be talking about Dementia in the Singapore context.

Dementia is becoming quite a big problem. According to a statistic published by Straits Times, one out of five individuals will get Dementia when they are 75 to 84 years old. More and more people are suffering from dementia. 21.9% from 75 and 84 years old are going to suffer from dementia. What is worst is those who are 85 and above has more than 50% chance of suffering from dementia. Unfortunately, the life expectancy is between 82 to 84 years. Life expectancy means the average age of death and does not mean it is the guaranteed age of death. If you are the lucky one that falls at the wrong side of the curve, you have half the chance to live beyond the life expectancy. By the way, women have a higher chance of dementia. As you can see, this kind of statistic is quite troubling.

Dementia has three levels of severity. They are mild, moderate and severe. For mild cases, there will be some memory loss and they need some prompting to take care of personal needs. Moderate cases of dementia requires some assistance for personal care , there is some impaired judgment and are not able to go out independently. The severe form of dementia is more worrisome as the patient cannot remember people and does not know how to do things like personal care e.g. not able to feed oneself, go to the toilet and dressing oneself etc. To me, such severe form of dementia is similar to physical impairment. Hence, dementia will have two aspects: physical impairment and mental impairment. Therefore, we need to address both the physical and mental impairment when we do financial planning.

Like all financial planning, it has to be done earlier. For example, if you are mentally impaired, you cannot plan anymore. Financial planning is unique in the sense that you plan in anticipation for something negative that might happen in the future. When that event happens, you will be prepared for it. This is unlike medical science that there is a prevention aspect and there is a cure aspect. So, if you are sick, many diseases can be cured. However, in financial planning, most of the time there is no cure once a problem has occurred. If you do not have money for retirement, nobody is going to give you money. Similarly, once you do not have the mental capacity, it is too late to do any planning. You need to do financial planning when you are young. Ironically this video is for those who are young.

Now, I want to talk about the three things you can do in financial planning and dementia.

The first thing I want to talk about is the Lasting Power of Attorney or LPA for short. In LPA, you empower someone to make decisions for you when you lose your mental capacity. Under the LPA, you – who is called the donor – to appoint another person – called the donee – to act on your behalf should you be unable to make decision due to the lack of mental capacity. The donee can be anyone like your spouse or children or even a trust company. Normally we have heard of Limited Power of Attorney, this is not to be confused with Lasting Power of Attorney. In Limited Power of Attorney, you empower a friend or relative to make decisions for you when you are overseas pertaining to the sale or purchase of a property. However, the LPA is used only for those who lack mental capacity. This instrument has to be done when you are mentally well. To do your LPA, you can go to the Office of Public Guardian website to download Form 1 which is a generic template. Form 1 is for simple, straight forward cases. If Form 1 does not meet your needs, you will have to see a lawyer who will use Form 2 for customization. Once the form has been filled up, you will need to see a certificate issuer as listed on the website. It is usually a psychiatrist, doctor or lawyer accredited by the Office of Public Guardian. The fees are not fixed but are about $25 to $80 as stated in the website.

The second thing I want to discuss is the cost of nursing home. If you have the severe form of dementia, you will require care and personal assistance provided in a nursing home. According to this webpage HERE, the cost of nursing home is $1200 to $3500 a month before means testing. This is in today’s value. However, you need to take into account of inflation. If you are 50 years old now but have to stay in a nursing home in 20 years’ time and assuming inflation of 5%pa, we will be looking at a cost of$7900 a month. This amount is rather expensive. Unfortunately, the integrated shield (IP) plan covers little or has no coverage for nursing home. As for total and permanent disability (TPD), most of the existing TPD riders ends at 60, 65 or 70. The nearest kind of insurance is the long-term care insurance meant for those who are 40 years old and above. The default long-term care insurance that people are enrolled is called the basic Eldershield. Eldershield pays $400 a month for 6 years when one is unable to perform 3 out of 6 activities of daily living. However, many people opted out of Eldershield and they are usually those in their 50s currently. There are two reasons why they opted out. The first reason is because they felt that the coverage is too low. However, I found it strange why they opted out. If the coverage is too low, doing so would make their situation worst. The right approach is to buy more rather than cancelling the policy. If you bought a meal that is insufficient, the right approach is to purchase additional food instead of throwing everything away. The second reason why some people opted out of the Eldershield is the misconception that ‘the government is trying to cheat’ their money. When I asked them why they think that way, their response is that it is not possible to claim from Eldershield. Again, when I asked them who told them that, they will say it was their friends who told them that. And so, the decision to opt out of Eldershield was based on illogical reasoning (low coverage) and hearsay. I suggest getting Eldershield. The basic one is $400 a month which is a bit low. Base on my calculation, $3000 now when projected with 5% inflation in 20 years is nearly $8000, which is very expensive. So it is better to upgrade to a higher amount. The government allows $600 of Medisave to be used to pay for the upgrade but the sum assured is only about $1200 or $1600 which is very little.

The third aspect of financial planning is retirement planning. If your retirement plan is too complicated, you will be in trouble when you lack mental capacity. I know of retirees who are good in stock pickings but the day will come when they will lose mental capacity. Make sure your retirement plan is simple. Do not have 10 properties. It is hard to manage. Do not do things like technical analysis, fundamental analysis, etc which requires mental capacity. I suggest use annuities. If possible, top-up your CPF Special or Retirement Account so that you will have a constant steam of income from CPF Life regardless of your mental capacity. However, CPF Life is often insufficient even if you opt for the Enhanced Retirement Plan. Hence, it is important to get a separate annuity. Private annuities have to be obtained earlier. The returns are higher if you purchase a private annuity plan when young. Returns are poor if you obtain it when you are older. A lot of clients come to me for retirement planning when they are more than 50 years old. Unfortunately, it is too late to do retirement planning at such age. In order to get good products and better rate of returns, do your retirement planning earlier.

Another thing to note is do not put everything into property. Many retirees find it a big hassle to actually manage property as a source of rental income. Having one property is easier to manage as compared to ten properties. A few retirees gave up their property because they find it hard to handle their tenants. If the tenant is good, it is fine. However if you have a bad tenant, you might need to run errands every other day. Even if you outsource to your property agent to manage for you, they still need your decisions on actions such as whether to proceed with the repair on damaged items or to take action against the tenant. I heard of someone who sued the tenant and it got into a big mess. Don’t put all your eggs in one basket, so like retirement planning, diversify but don’t make it too complicated. Make sure your income comes from a steady stream that doesn’t fluctuate with the market or with your lack of mental capacity.

I’m coming to the end of this presentation on what kind of financial planning you should do in anticipation of dementia. Dementia is not something that happens to a few people. It can happen to you and me. One in five chance for those between 75 to 85 years old and 50% chance for those above 85 years old. Since people are living longer but not necessarily healthier, the chance of it happening to you and me is extremely high. To wrap up, for those who have just joined us, you can rewind as Facebook has a recorded version. The three things to think about is to do your Lasting Power of Attorney, second is to make sure you are insured with long term care insurance. You can ask your financial adviser about this. Thirdly, is retirement planning and make sure it is simplified. For me as a professional financial planner, I feel very happy when I do retirement planning because I will think of ways to solve my client's problems. Even if I say it is too late, I will still try to solve the problem and that makes me happy. Frankly speaking, I don’t like to do insurance because those people who come to me already have an existing condition. They have medical problems and expect me to make miracles which are not possible. Usually if you have a medical problem, it is too late to buy insurance. For retirement planning, potentially the problem can be solved usually by cutting down your expenses, managing your expectations or delaying retirement for a few years. I’m coming to the end of this video presentation. I hope you like this presentation. If you have any comments, please comment below the page here. Let me know what you think. You can ask me some questions but no personal questions please. If you need personal advice, you need to directly message me, not through an open forum. Do Like this post, Like the Facebook page so that so will be notified of further Facebook Live presentations in the future. I hope you have a great weekend ahead. Goodbye."

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